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Will Self-Driving Cars End The Big Automakers?

Ed Sappin is the CEO of Sappin Global Strategies (SGS), a strategy and investment firm building the next generation of global innovators.

Technological innovation is at the heart of modern development, driving society forward and creating new opportunities, while disrupting and destroying existing industry after existing industry. The mobility sector is no different, and in the near future, innovations will alter transportation and how automakers and drivers engage with cars.

In California, it’s projected that 600,000 driving jobs will die off due to automation technology. And ride-sharing companies like Uber and Lyft have already invested in their own driverless car technology, signifying a future major loss of employment for drivers. Big automakers confront the threat of extinction, too. Will thistransportation revolution push them out entirely, or will they manage to pivot and take the lead in the innovation race?

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While it’s predicted by McKinsey & Company that automotive vehicle sales will continue to grow, the annual growth rate is expected to decrease about 2% annually by 2030. Shifting consumer needs also demonstrate how private vehicle sales will continue to decline as ride sharing becomes more popular. In an interview with USA Today,Raj Kapoor, Lyft’s chief strategy officer and head of business for its self-driving division, shared that owning and maintaining a personal car costs an average of $9,000 per year and that most cars are only used about 4% of the time.

In addition, McKinsey & Company predicts that 1 in 10 new cars may likely be shared vehicles by 2030 and may increase to 1 in 3 by 2050. Personally, I believe these projections far underestimate how quickly the car-sharing economy will take over from traditional car ownership, as artificial intelligence (AI) and self-driving vehicles should accelerate these trends.

If the major automakers want to survive and remain relevant, they need to focus on three crucial areas: reshaping their business models, digitizing their services and prioritizing shifting consumer needs.

Reshape Business Models

A PwC report predicts that electronics will make up nearly 50% of auto manufacturing costs in the future. Already, we see a shift from traditional mechanical manufacturing practices to a focus on electronics and software. The $15.3 billion acquisition of Mobileye by Intel (Full disclosure: I'm a former employee of Intel) is a prime example. Traditional auto parts manufacturers will increasingly face competition from technology-based companies like Nvidia, where computer systems are researched for driverless cars. If big automakers don’t invest heavily in tech advancements and reshape their business models, they will lose out to those that do.

Not only do major automakers need to worry about other automakers, they’ll also have to worry about competitors teaming up with tech companies like Apple, Google and Amazon (Full disclosure: I own stock in Amazon). Many leading car and tech companies have already partneredto tackle automation, including Volvo’s recent collaboration with Microsoft and Ford’s $1 billion investment in Argo AI.

Big automakers also have the opportunity to become major providers of large maintenance contracts for cloud transportation customers so that car sharing and cloud transportation systems — like Lyft and Uber — are always functioning.

Digitize Services

Software is the key to driverless car technology. Existing car companies can maintain their business in the face of digital disruption, but only if they provide services that go beyond the product. They need to build a service around the vehicle through digital maintenance and support.

Digital driverless car technologies currently in development include: cloud computing software, multiple sensors, real-time data sharing, robotics and a combination of crowdsourcing and machine intelligence (paywall). In fact, emerging new business models that implement big data and the Internet of Things — like connectivity services and software upgrades — can expand automotive’s potential revenue market by about 30% or $1.5 trillion. IHS Automotive predicts that over 20 million self-driving vehicles will hit the road by 2035. And a study by research firm Strategy Analytics and Intel estimates that in 2050 the self-driving vehicle market worth could reach $7 trillion.

Of course, cybersecurity will also be a huge priority for autonomous systems in the future. Managing the risk of highly destructive hacks that may weaponize automated vehicles demands significant improvement of cybersecurity analytics and controls, along with the dedicated participation of the automotive sector. To that end, car companies will need to find ways to leverage expertise within cybersecurity, data privacy and software maintenance to help improve the networks of autonomous driving systems and stave off Internet of Things hacks like we saw in 2016.

Slowly but surely, it seemsprivate car ownership will simply become a thing of the past. Self-driving cars will be safer and more efficient while saving consumers money. Although rates of vehicle ownership will decrease among the general public, I believe automakers can recoup their profits through replacement and maintenance incurred by e-hailing service cars.

Additionally, as emerging technologies advance, big automakers will have to offer specialized solutions that are tailored to the individual needs of consumers. For example, automated car technologies may implement things such as Microsoft’s app, Seeing AI, which uses machine learning, computer vision and natural language processing to help describe the outside world to people who are visually impaired.

As private ownership dwindles and businesses become the primary customers for automakers, I predictbrand importance will likely lose relevance for the average consumer. Car makers will have to adapt their marketing campaigns to appeal to business-to-business customers, which will mean redirecting their marketing dollars for longer sales cycles.

See The Road Ahead

If the industry is to support itself, I believe partnerships need to foster supportive and open ecosystems between suppliers, manufacturers and service providers. In addition, government regulation and city infrastructure will have to support autonomous and electric vehicles through defined roads, traffic regulations and working signals.

Regulation may progress slowly for self-driving vehicles, but the time and money already invested in automation shows that driverless technology is on a clear path forward. Big automakers can survive and prosper if they quickly shift from traditional production and design models to deal with emerging tech trends.

Ultimately, car companies need to become technology companies if they want to survive and thrive in the era of self-driving cars and AI. While some car manufacturers may take a back seat, others can share the road to success via partnerships with the tech giants or through monetary investments in emerging self-driving car technology. So, there is room to remain in the lead in the auto sector, but hang on — because it will be a wild, shifting ride in years to come.

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